Looking at the Wrong Things

Terrible, horrible, no good, very bad measurement, part 2

As my last post explained, the conventional method of measuring household-level water affordability is to divide a utility’s average residential bill by its community’s Median Household Income (MHI). If the resulting percentage is less than 2.0 or 2.5 (4.0 or 4.5 for water and sewer combined), then water is deemed “affordable;” if it’s greater, then water is “unaffordable.”

There are at least four fundamental problems with average bill ÷ MHI as a measure of household-level affordability. This post will address the first three; I’ll address the fourth problem in my next post.

Problem #1: median vs. low income

In America, water and sewer utilities are inexpensive relative to what most of us pay for energy, to say nothing of cell phones, Internet, or espresso. In all but the smallest or desperately poor communities, the median-income household doesn’t have a water or sewer affordability problem.

The most frequent criticism of the conventional metric is that a focus on median income misses the real subject of affordability concerns: poor households. For low-income families, water and sewer services may force important economic tradeoffs. Measuring affordability as a function of an entire community’s median household income obscures the impacts of rate setting on low-income customers. As income stratification in a community increases, the degree to which %MHI masks affordability problems increases.

Problem #2: average vs. essential use

Average residential demand is a poor basis for affordability analysis. For most American utilities, average residential water consumption is considerably higher than its median, because a minority of high-volume customers drives up the average. Moreover, most utilities exhibit significantly greater demand during summers due to discretionary use for things like lawn care, car washing, and swimming pools. A great deal of a utility’s average water bill pays for non-essential water uses.

Most people who are worried about water and sewer affordability aren’t much concerned with the cost of maintaining large lawns. Rather, worries about affordability are about customers’ abilities to pay for water and sewer service to meet their essential needs for drinking, cooking, cleaning, health, and sanitation. In most cases evaluating affordability as a function of average consumption implies an unduly high demand.

Problem #3: essential (non-water/sewer) costs of living

Water and sewer services are not the only goods and services that people need to live. Housing, food, health care, home energy, and other essential goods and services also affect water and sewer affordability to the extent that they strain households’ financial capacity. These non-water/sewer costs vary widely across communities. Water bills may be low as a percentage of income, but much higher as a percentage of disposable income if the costs of housing or health care are high, for example. In such cases, water rates that are nominally low may still force serious sacrifices for low-income customers. The conventional affordability metric is insensitive to these differences in costs of living.

My next post will take up the fourth, and possibly most pernicious, problem with conventional water affordability metrics.